Company Update
We recently conducted a survey on the company’s new store format. We expect the company’s same‑store growth in 2H25 to remain solid. We anticipate that the pace of store openings may accelerate in 2026, and we recommend keeping an eye on the performance of store renovations and the potential of the new model.
Comment
In 2H25, same-store sales grew steadily year-on-year, and long‑term profit margins are expected to improve. We forecast that the company’s same‑store sales growth in 3Q25 and 4Q25 will be in the low‑to-mid single digits. Looking ahead, we believe the company may further strengthen consumer habits by launching more bundled offerings, while driving up average transaction value through product innovation and strategic product combinations. By leveraging a richer product portfolio and enhancing member engagement to boost repeat purchases from existing customers, the company can achieve sustained traffic growth. We expect the company’s same‑store sales to maintain low‑single‑digit year‑on‑year growth in 2026. At the same time, we are optimistic that the company can pass on cost savings to consumers by optimizing its upstream supply chain, thereby achieving stable gross margins, while leveraging economies of scale to dilute operating expenses and sustain healthy profit margins. The company’s guidance indicates that its long‑term core profit margin is expected to rise to 7–8%.
The pace of store openings is accelerating, and we recommend paying close attention to the impact of large-store renovations and reconfigurations. In 2025, the company added a net 1,416 stores, bringing the total to 11,566. We expect the store closure rate to be optimized to the mid‑single digits. Looking ahead to 2026, we anticipate that the company will accelerate its store expansion efforts to capture market share, with over half of newly opened stores located in township and county markets. At the same time, the company is optimizing its store formats by gradually upgrading existing small stores into larger outlets exceeding 80 square meters. These larger stores will enhance their revenue-generating capabilities through measures such as expanding store footprints (to increase the visibility of storefronts), refining product offerings (by introducing fresh-cut meats, freshly baked goods, draft beer, and other items), and extending operating hours and customer segments (for example, by adding breakfast options and attracting more senior customers through the appeal of staple Chinese pastries).
Focus on the potential of new models. Leveraging its strong supply chain and operations management capabilities, the company continues to explore innovative business models—such as the launch of the “Guo Quan Xiao Chao” (Pot Circle Stir-Fry) model, which adopts a “shop‑to‑store purchase + on‑site robot preparation + online order pickup” approach. The company’s first company‑owned store is currently undergoing trial operations in Zhengzhou. Looking ahead, the company plans to expand along two distinct paths: first, by integrating the existing store sales and on‑site preparation model with the deployment of stir‑fry robots; and second, by establishing small, “side‑by‑side” specialty stores that operate alongside the current outlets. Guo Quan Xiao Chao and Guo Quan Shi Hui share the same supply chain and digital infrastructure, with an average transaction value roughly half that of mainstream social dining. At the same time, the company is pioneering innovative ventures such as camping resorts, offering hot pot, barbecue, and afternoon tea in package deals tailored to outdoor enthusiasts. We recommend keeping a close eye on the validation of the single‑store model.
Profit Forecast and Valuation
We maintain our core net profit attributable to shareholders for 2025/26 at RMB 440 million/550 million, and introduce a 2027 forecast of RMB 660 million. The current stock price corresponds to P/E ratios of 19x/15x for 2026/27. We maintain our outperform industry rating and target price of HK$4.90, corresponding to P/E ratios of 22x/18x for 2026/27, with upside potential of 17%.
Risk
Same-store sales and profit margins fell short of expectations; the competitive landscape has deteriorated; the new model has underperformed.
